For two decades, the Netherlands' “polder model” seemed to be working miracles. Now the shine has worn off. But the Dutch still have plenty going for them, argues John Peet

DRIVE a few kilometres north-east out of Amsterdam and you gradually notice that the landscape has changed. It is, inevitably, flat. But the fields, roads and ditches start to look almost too manicured; the settlements and towns too planned; and the trees become notable mostly for their absence. And then you realise that this area was until recently under water: until 1968, in fact, when it was drained to become Flevoland, the largest and newest Dutch “polder” (land reclaimed from the sea), situated at the foot of the Ijsselmeer.

Every schoolchild knows that water is critical to the Netherlands. Fully one-quarter of the country is below sea level, and much of it has been reclaimed over the centuries: as people say, “God made the world, but the Dutch made the Netherlands.” Although the landscape looks solid enough today, dangers still lurk. As recently as 1953 the southern dikes were breached, inundating part of Zeeland and killing some 2,000 people. One of the more poignant places in the country is just south-east of Dordrecht, where on November 18th 1421 the dikes gave way and a medieval polder was flooded, with the loss of 73 villages and as many as 100,000 lives. This former polder has never been reclaimed: today its marshes and lakes make up the Biesbosch national park.

Water has been crucial to Dutch survival in war, too: whenever the country has been under threat, the last-ditch option, literally, has been to open the sluices. A turning-point in the nascent Dutch republic's revolt against Spanish rule came with a breach of the dikes that made possible the relief of Leiden. A century later, the same weapon held off the marauding soldiers of Louis XIV. It did not, however, keep out Napoleon, who contemptuously referred to the country as “alluvium deposited by the principal rivers of my empire” and unceremoniously abolished the 300-year-old republic. (The Netherlands is a rare example of a country that has switched from republic to monarchy, rather than the other way round.)

For the Dutch, water has a significance beyond the past. To take on a project as ambitious as the making of a polder requires two important attributes, besides capital and property rights. One is a strong governing authority; the other an ingrained habit of co-operation and consultation. It is these twin attributes that lie at the heart of the “polder model”, the popular name for the Dutch practice of policymaking by consensus between government, employers and trade unions.

Dutch disease, miracle cure

Over the past decade, the polder model has attracted a lot of interest from abroad. Much of Europe has been struggling with high unemployment, low growth, rigid labour markets, excessive regulation and an overgenerous welfare state. The obvious and unflattering comparison has been with the United States, whose economy has repeatedly proved itself more flexible, more innovative and more resilient than Europe's. Yet not all of Europe has fallen behind. Several smaller countries, such as Denmark and Ireland, have prospered mightily. And so too has the Netherlands.

Kok took the rapAP

As the 1990s progressed, the Netherlands seemed to have hit on a winning combination of high growth, low unemployment, low inflation and a budget surplus—all without dismantling its generous welfare system. Such luminaries as Bill Clinton and Tony Blair hailed Wim Kok, the Dutch prime minister, as an unsung hero of their “third way”. Mr Kok's government resigned last month, ahead of the election later this month, after a report criticised the Dutch over the 1995 Srebrenica massacre. But the true legacy of his eight years in office will be the revival of the country's economic confidence.

The Netherlands has, admittedly, long been prosperous: in the 17th century, the Dutch republic was twice as rich as any rival. But by the 19th century it had fallen back; it came late to industrialisation, and well into the 20th century was still primarily agrarian and less well off than its neighbours. After the dark period of German occupation in the second world war, however, the Netherlands quickly joined in Europe's economic revival, and in 1959 it received a boost from the discovery of large gas reserves off its northern coast.

Yet things soon started to go wrong. Gas fuelled a massive expansion of public spending, especially the construction of a ludicrously generous welfare state. By pushing up the exchange rate, gas also helped to eat away at Dutch competitiveness. The two oil shocks of the 1970s made matters worse, especially when the government responded with reflation rather than retrenchment. Soon the rest of the world was talking of the Dutch disease, of “welfare without work”. The budget deficit touched over 7% of GDP in 1982.

Then came a big and, at first, largely unheralded change of direction. In 1982 representatives of business and trade unions (the unions' leader at the time being the durable Mr Kok) signed an accord in a suburb of The Hague called Wassenaar. Under this accord, later endorsed by the government, the unions promised to deliver pay restraint, including more decentralised wage bargaining, in exchange for a new emphasis on jobs. For its part, the government undertook to sort out its fiscal mess and to lower taxes. The Wassenaar accord laid the foundations for the economic renaissance of the late 1980s and 1990s, when the talk turned from Dutch disease to Dutch miracle.

Advocates of the Dutch way like to claim that this miracle was a direct consequence of the polder model. The more fervent even urge the rest of Europe (and maybe the world) to learn from it and to adopt a similar model themselves. This survey will try to assess whether they are right to be so enthusiastic. Yet from the outset it is worth noting three objections to their claims—quite apart from the obvious difficulty of transplanting any model that is designed to suit one particular small country and its culture.

The first is whether there has really been a miracle at all: still a matter of some controversy, especially over employment. The second is whether, if there has indeed been a miracle, it had any particular connection to the polder model. These two points will be considered in the next article. Before then, though, a third objection should be answered: that the exact definition of the model remains unclear.

So what exactly is the polder model? Some say it means no more than a strong desire for consensus. But the more rigorous answer includes the institutional arrangements that long predate the Wassenaar agreement. Immediately after the war, the private Labour Foundation, which consists of representatives of both employers and employees (the “social partners”), was established; five years later, in 1950, the government set up the public Social and Economic Council, or SER, which has government representatives on it as well. Two ex-officio members of the council are the governor of the Dutch central bank and the director of the CPB, a semi-autonomous office for economic policy analysis that also prepares official forecasts.

The SER is supposedly nothing more than an advisory body. Even so, as Hermann Wijffels, its chairman, puts it, if its members agree on a policy, for example on social security or health-care reform, it is not easy for the government to ignore it. More generally, the SER mechanism encourages wide consultation between employers and unions, and not only over wages. This is made much easier by the country's small size, and by its traditionally sensible trade unions. Lodewijk de Waal, head of the unions' federation, talks openly of the need for higher profits and more labour-market flexibility, for example (though he also says he was against the Wassenaar accord at the time). Mr de Waal is in close touch with his counterpart at the employers' federation, Jacques Schraven.

But there is also a second, less widely noted component of the polder model: the Dutch political system. The Dutch republic was itself based on consensus, among the seven provinces that initially made up the United Provinces. Although the main province, Holland, was overwhelmingly dominant, big decisions required the approval of all: the 1648 treaty that finally ended the war with Spain was almost blocked by Zeeland, for instance. Thus consensus and decentralisation are built into the fabric of Dutch government.

Today's parliament reflects this. Proportional representation, the lack of any threshold before a party can gain parliamentary seats and the roots of most political parties in the religious “pillars” of Dutch society mean that there are many parties in parliament. All governments therefore have to be coalitions. Mr Kok's government was a left-right “purple” coalition of his own Labour party with the right-wing Liberal party and the small, left-wing D66 party. In one sense, this coalition can be seen as symbolic of the consensus-building that underlies the polder model. Such a broad coalition is more likely to adopt compromise policies.

Evaluation time

This is a particularly opportune moment to re-examine the apparent success of the polder model, for three reasons. The first is that, after nearly two decades of healthy performance, the economy has suddenly begun to look a lot less bouncy. Growth has slowed sharply, inflation has reappeared and unemployment is rising. Some critics have suggested that the economic wheels have come off the polder model. The more sober OECD, in its latest country report, notes merely that “these are undoubtedly testing times for the Netherlands, with the economy moving away from sustained non-inflationary growth.”

The second reason is that the normally predictable Dutch politics is under attack. The upheaval does not stem from the government's resignation on April 15th, which made little real difference, since an election was anyway scheduled for May 15th, after which Mr Kok had promised to step down. But it had long been assumed that the next government would be just another variation on the familiar theme, perhaps this time including the Christian Democrats. However, a new actor has burst on to the stage in the shape of the populist Pim Fortuyn. Mr Fortuyn is leading his own party into the election and may, say the polls, win so many seats that it will be hard to keep him out of the government.

Mr Fortuyn's arrival may be more than a coincidence. For the third reason for reappraising the polder model is that he reflects a growing dissatisfaction with the whole system. Despite their economy's success, Dutch voters, like those in France who recently backed Jean-Marie Le Pen, seem strangely disgruntled. Many are unhappy over their country's reputation for excessive tolerance—whether of immigrants, soft drugs, prostitutes or even gays (paradoxically, Mr Fortuyn is openly gay himself). There are particular worries over a practice known as gedogen, an untranslatable term that signifies acceptance of mild law-breaking: in effect, the opposite of New York's policy of zero tolerance.

The malaise that is showing in support for Mr Fortuyn is also strengthening the criticisms that some leading Dutch figures have been making of the cosy and consensual polder model itself. In recent months, both the governor of the central bank, Nout Wellink, and the finance minister, Gerrit Zalm, have suggested that the polder model may be past its best. Why do they feel this? A big part of the answer is to be found in their country's recent economic performance, which has not been quite as good as enthusiasts like to maintain. Nor, on closer examination, does it owe all that much to the polder model.